Dangote Cement:Ramping up African operations




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With the Nigerian behind us, in the first quarter of 2015 has  witnessed  a ramping up of its  African operations, and a stable price that should support margins at current levels, Renaissance Capital has

According to RenCap, “ ’s (Dangcem) 1Q15 results featured maiden contributions from some of its ex-Nigerian operations which, combined with a significant price increase in Nigeria, helped to offset a 10% decline in Nigerian volumes. We remain positive on the medium-term outlook, with the Nigerian behind us, ramping up of the African operations, and a stable price that should support margins at current levels.
“At its current 12.3x P/E to December 2015, we think the share continues to offer value. Maintain BUY and NGN205 TP.
Solid results in a difficult quarter.”
It says Dangcem EPS growth of 45.7% to NGN4.09 (35% of FY15E) with revenue up 10.8% at NGN114.7bn (22% of FY15E). “EBITDA improved 14% to NGN72bn (27% FY15E) at a 62.8% margin up from 61% in 1Q14. A lower rate (2% vs 10% in 1Q14) underpinned the 44% YoY growth in attributable earnings. Group volumes improved 3.4% on account of new operations coming into service over the period outside Nigeria.”
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It adds  that according to management, the volumes in the Nigerian market declined from 5.5mnt in 1Q15 to 5.4mnt (26% FY15E), with Dangcem volumes declining 10% to 3.1mnt over the period (23% FY15E) on account of market share shifts and logistical issues that impaired customer deliveries over the period. “The group increased prices to NGN1630/bag at period-end from the NGN1537 at the start of the year allowing for Nigerian margins to largely up despite the lower volumes.”
It notes  that first time contributions from Senegal and Cameroon were small as the plants ramped up, with Sephaku cement in SA the biggest ex-Nigeria contributor to the 690kt sold outside Nigeria (up 350% YoY). “We expect this contribution to grow over the balance of the year, particularly as Tanzania, and Zambia begin to contribute in 2H15.”

RenCap argues, “While ramping up outside Nigeria will contribute to the improving outlook, we continue to think that the biggest risk remains in Nigeria: if the currency depreciates further as we expect (to NGN220/$1 from NGN200/$1 at present), we doubt if prices could increase much further, implying margins remain at risk. We nevertheless maintain our numbers: we currently expect NGN11.71/NGN12.88/NGN14.81 for FY15E/16E/17E EPS respectively, representing a 16% three-year EPS CAGR.”
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